[Market Review].
The 10-year U.S. bond yields remained high. Overnight, the U.S. Treasury auctioned $24 billion of 20-year Treasuries, a huge success, with the winning yield reaching 2.29%, well above the previous month’s 1.92%, and buyer demand the strongest since last June. 20-year U.S. bond yields fell nearly 5 basis points after the auction pricing. And the 10-year U.S. bond yield also fell 2 basis points, but fully recovered its losses to stand at 1.62% less than an hour later, setting a new intraday high. Zero Hedge analysis says the market was unmoved by the good Treasury auction results, probably because the Fed FOMC is going to announce its interest rate resolution tomorrow and bond traders are reluctant to have much exposure until tomorrow. Any hawkish comments from Powell could have devastating results for the 20-year U.S. bond, or even all long-term U.S. bonds.
The dollar index rose for the third day in a row. U.S. bond yields remain high and the dollar index has steadily strengthened. The dollar index rose for the third day in a row and is now in a narrow range above 91. The monthly U.S. retail sales rate for February, known as the “scary data”, was -3%, much lower than the previous value of 5.3% and a new low since April last year. The poor performance of the data was mainly due to the severe winter weather that affected most of the United States at the Time, resulting in a temporary decline in demand. Perhaps because of early expectations, the dollar index was only briefly under pressure after the data was released, and then continued to shake to the upside.
Gold was largely flat. Gold prices were under pressure from higher U.S. bond yields and a stronger dollar. Although gold once broke upwards through the $1740 mark, but a look at the day’s market, gold’s intra-day trend is basically flat around $1730. The current market focus is on tomorrow’s Federal Reserve interest rate resolution.
Silver fell below $26. The trends in silver and gold diverged. Silver oscillated downward during the day, losing more than 1%. By this morning, silver was still hovering below $26.
The euro rose and then fell. The euro rose and then fell against the dollar and is now running near 1.19. Germany, France and Italy announced a suspension of the AstraZeneca New Crown vaccine following reports of possible serious side effects. Problems with vaccination may slow regional economic recovery and may keep the euro at a lower exchange rate for longer. However, the World health Organization said that there is no proof of a link between side effects and the vaccine.
The British pound staged a V-shaped market. The pound touched down to 1.38 against the dollar during the day, then recovered lost ground and returned to near 1.39. The Governor of the Bank of England said that the UK’s first quarter GDP is expected to decline 4% from a year earlier, pressuring the pound.
U.S. oil fell slightly. Expectations of a slower economic recovery in Europe due to problems with vaccinations weighed on Crude Oil demand expectations. In addition, last month’s cold snap led to disruptions in refining operations and the continued resumption of crude oil production, which also put pressure on oil prices.
[Risk Warning
Gold: market lack of risk aversion gold prices short-term look down to 1600
Institutional analysis said that the U.S. economy is gradually recovering from the impact of the Epidemic, coupled with the U.S. President Joe Biden‘s $1.9 trillion stimulus bill, market sentiment will become more positive, the lack of risk aversion will make gold continue to be blocked on the upside in the short term. As a result, the agency lowered its short-term gold price forecast, which is expected to fall to $1600 per ounce. Nevertheless, the long-term gold price is still bullish, and even able to rise to $3000 per ounce.
The euro: the euro is both resilient and not overly bearish
Goldman Sachs believes that despite the expected decline in growth in the European region, the resilience of the euro may partly reflect the background of positive inflows into the euro, including increased reserve recovery, limited space for European fixed income outflows, and moderate inflows into equity portfolios. If the U.S. FOMC hinted at this week’s meeting will raise interest rates early, the euro may fall against the dollar, but the bank warned not to overly infer weakness in the euro against the dollar, as the background of positive capital flows, should remain an important factor driving the euro against the dollar cross.
US-JPY: US-JPY fears continued rally Focus on resistance at 109.25
Overnight, the dollar touched down against the yen at 108.77, then rebounded and recovered some of the lost ground. Technical analysis by UOB indicates that USDJPY may continue to rise to 109.85 if it breaks through resistance at 109.25 on the upside. on the downside, initial support is at 109 and 108.8 thereafter.
[Key Outlook].
17:00 IEA may expect crude oil inventories to draw down this year
In the last month the IEA expects global oil demand to increase this year as well, with oil inventories to decrease rapidly in the second half of this year. In the last week, OPEC’s monthly report raised its forecast for global crude oil demand growth in 2021 and overall non-OPEC supply growth. Given the widespread vaccination and gradual economic improvement globally, the IEA’s monthly report is likely to continue to raise the global crude oil demand growth rate and the overall non-OPEC supply growth forecast, arguing that crude oil inventories will decrease rapidly in the second half of this year. Overall, the IEA’s comments should not have much of an impact on the market.
22:30 EIA crude oil inventories may decrease
Coming to the EIA crude oil inventories, the data released last week increased by 13.798 million barrels. Financial blog Zero Hedge commented that WTI crude oil futures extended their intraday gains despite a second consecutive week of significant increases in EIA crude oil inventories. Analysts at brokerage PVM said there is little to match the economic recovery in the post-epidemic era when it comes to boosting oil market sentiment. In addition, the impact of storm-driven demand and production issues is expected to continue to be reflected in the data. This morning, API crude oil inventories have been released, down 1 million barrels, and gasoline inventories continue to decline.
Based on past experience, there is a relatively strong positive correlation between API inventory data and EIA inventory data, so EIA crude oil inventories could also decrease.
Even so, it is still something to keep an eye on. The current market expects that EIA crude oil inventories may increase by 2.715 million barrels in the week to March 12. If the released data exceeds expectations, oil prices may dip in the short term; if the inventory data is less than expected, oil prices are expected to strengthen.
Thursday 02:00 Fed may maintain cautious Inflation outlook
At its January resolution, the Fed left interest rates and the size of bond purchases unchanged. Fed officials previously hinted that they do not intend to touch the ultra-easy policy dial for some time, are not much concerned about the recent rapid rise in U.S. bond yields, and hope for a strong economic recovery. Federal Reserve Chairman Jerome Powell said there are good reasons to expect job opportunities to increase in the coming months. But the labor market to return to a state of full employment, there are still many foundations to be tamped down. Powell also reiterated that credit will remain loose and flowing until the U.S. population returns to work. From the officials’ speeches, the Fed is unlikely to change much, and the pace of bond purchases is likely to remain unchanged.
By the end of the week, Credit Agricole expects that the Fed is likely to maintain a cautious inflation outlook; the dot plot will reiterate the view that interest rates will remain low for the next few years.
Finally, the Fed may extend exemptions to the supplementary leverage ratio rule to help large U.S. banks better absorb the supply of U.S. Treasuries, thereby dampening the recent rise in U.S. bond yields.
Thursday 02:30 Powell may downplay rising inflation
After the interest rate resolution, Fed Chairman Jerome Powell will hold a briefing. Powell has repeatedly stressed that the U.S. job market is still far from achieving the Fed’s full employment goal, so it is too early to discuss tapering the Fed’s support. The same statement should be made this time.
For inflation, Powell has downplayed both rising inflation and volatile U.S. bond yields in recent months, saying that inflation is only temporary and that rising U.S. bond yields will not cause disruptions.
We think Powell may reiterate that the U.S. job market is still far from the full employment target, inflation is only temporary and the rise in U.S. bond yields is within the acceptable range. If that is the case, the dollar index could continue to strengthen.
If he starts to worry about these issues, as the ECB does, or even decides to buy long-term bonds that affect mortgage rates, U.S. bond yields and the dollar could fall quickly.
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